The Australian dollar skidded to a new six-year low on Wednesday as falling iron ore prices and a further drop in Chinese stocks spooked a market already shaken by Greece's debt crisis. The Aussie, often used as a liquid proxy for China plays, slumped as deep as $0.7390, surpassing the overnight low of $0.7398. It has since edged back to $0.7411.
"Any risk-off sentiment that's particularly related to China will see the Aussie get hit pretty hard," said Sue-Lin Ong, head of Australia and New Zealand FIC strategy at RBC Capital Markets. "The most pressing factor at the moment is developments in key commodity prices in China. Iron ore fell overnight. Asian equity markets in China have opened up much weaker this morning," she added. Chinese iron ore futures plunged nearly 8 percent to a record low as the selloff in China-traded commodities showed no sign of letting up amid a bearish view on the economy and following steep losses in equities.
The Aussie also lost ground against the safe-harbour yen, reaching a three-month trough near 90.20 yen. The New Zealand dollar hit a five-year low of $0.6620 in offshore trade, before trimming losses to trade around $0.6643, just a touch softer on the day. Broad weakness kept the kiwi near multi-year lows against the yen and sterling while its trade-weighted index lingered around 70.45, near a three-year low of 70.10 hit on Monday.
New Zealand government bonds rose, pushing the yield on two-year notes down 2.5 basis points to a two-year low of 2.68 percent, while yields on longer-dated debt fell 3.5 basis points. Australian government bond futures were sharply higher, with the three-year contract rising 9 ticks to 98.130. The 10-year contract rallied 13 ticks to 97.1800.